EconPapers    
Economics at your fingertips  
 

Capital structure adjustments: Do macroeconomic and business risks matter?

Christopher Baum (), Mustafa Caglayan () and Abdul Rashid ()
Additional contact information
Abdul Rashid: International Islamic University

Empirical Economics, 2017, vol. 53, issue 4, 1463-1502

Abstract: Abstract We show that risk plays an important role in estimating the adjustment of the firm’s capital structure. We find that the adjustment process is asymmetric and depends on the type of risk, its magnitude, the firm’s current leverage, and its financial status. We also show that firms with financial surpluses and above-target leverage adjust their leverage more rapidly when firm-specific risk is low and when macroeconomic risk is high. Firms with financial deficits and below-target leverage adjust their capital structure more quickly when both types of risks are low. Our investigation suggests that models without risk factors yield biased results.

Keywords: Macroeconomic risk; Business risk; Capital structure rebalancing; Speed of adjustment; Deviations from target leverage; Financial deficits/surpluses (search for similar items in EconPapers)
JEL-codes: C23 D81 E44 G32 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s00181-016-1178-1 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Capital Structure Adjustments: Do Macroeconomic and Business Risks Matter? (2016) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:empeco:v:53:y:2017:i:4:d:10.1007_s00181-016-1178-1

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Badi H. Baltagi, Bertrand Candelon, Subal C. Kumbhakar and Michael Lechner

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla ().

 
Page updated 2019-04-23
Handle: RePEc:spr:empeco:v:53:y:2017:i:4:d:10.1007_s00181-016-1178-1